Sports TV: Why your cable bill keeps going up

Meg James
Los Angeles Times

Last year, Americans collectively spent 31 billion hours watching sports on TV — a 40 percent increase from a decade ago.

They watched football, baseball, basketball, hockey, horse racing, NASCAR, rowing, rugby, soccer and volleyball — even Little League championships and poker games.

“Live sports is the most valuable content on the planet,” said Adam Ware, head of digital media at Tennis Channel.

Pay-TV distributors like DirecTV and Charter Communications have written bigger and bigger checks for the rights to carry sports channels — fortifying a business model in which cable and satellite TV subscribers, and advertisers, underwrite the costs.

Sports have become the glue holding the pay-TV bundle together. While internet streaming options including Netflix, Hulu and offer thousands of hours of scripted shows, there is little in the way of live sports. So sports fans remain tethered to their cable bundle.

But heading into 2017, it could be a new ball game. The cable business model that sports channels helped build is under siege. Pay-TV companies are balking at paying higher rights fees, fueling the kind of standoff that, for example, has kept thousands of fans from watching the Los Angeles Dodgers’ channel.

Pay-TV penetration peaked in 2009, and declines in the number of households that subscribe to a satellite or cable TV service have accelerated. Since 2010, basic cable channels, including ESPN, TNT and Discovery, have lost more than 8 million subscribers.

Consumers are weary of never-ending increases in their monthly pay-TV bills, which have been partly fueled by rising sports costs. And unlike years ago, they have cheaper online alternatives.

“Every year, there are more entertainment options for people to fill their leisure time,” said Dennis Deninger, a former ESPN production executive who now teaches sports communications at Syracuse University.

Nonetheless, sports channels retain considerable leverage. Sports programming generates $30 billion a year in revenue for TV companies, according to Barclay’s Capital. Big games grab the highest ratings. Last month, Fox Broadcasting scored 40 million viewers for the final World Series game. And fans tend to watch sports programs live, rather than fast-forwarding through the ads, which allows networks to charge a premium for the commercial time.

“Teams have rabid fan bases, and they have generations of loyal fans,” Ware said. “These are all the ingredients that make for hit TV.”

Broadcast and cable TV executives teed up more than 127,000 hours of sports programming last year, according to audience measurement firm Nielsen. That represents a 160 percent increase compared with 2005.

The major beneficiaries have been sports leagues and teams, which are expected to rake in an estimated $18.9 billion in media rights fees next year from TV, radio and internet outlets, according to a recent PwC report on sports.

The NFL alone collects nearly $7.5 billion a year from media companies, including nearly $1.9 billion a year from Walt Disney Co.’s ESPN for “Monday Night Football” and other football extras. The NFL reaps $1.5 billion a year from DirecTV for its Sunday Ticket package and roughly $3.7 billion a year from NBC, CBS and Fox.

That’s a long way from the first national TV sports contract, which was struck in 1960 between the ABC network and the American Football League.

That year, ABC agreed to pay $8.5 million over five years to televise weekly games and championships, said Deninger, who wrote “Sports on Television: The How and Why Behind What You See.” The rival NFL then “saw the wisdom of doing a national television contract to replace the 12 regional television deals that each of the NFL owners had,” he said.

A lucrative business model was born. But the game-changer was Rupert Murdoch’s upstart Fox Broadcasting’s gambit in 1993 for television rights for Sunday afternoon NFL games. Though TV broadcasters were losing money on the NFL, the network behind “The Simpsons” and “Married with Children” was desperate for credibility and a program that could bolster its TV stations. Fox bid a staggering $395 million a year — $100 million more than CBS had offered.

“That’s when the rights fees started to soar into the stratosphere,” Deninger said.

Having football put Fox on the map. Affiliate TV stations flipped their alliances to Fox. A few years later, when the rights package was up again, CBS swallowed another huge increase, dislodging NBC, and the race was on.

Now, Fox pays $1.1 billion a year for pro football, and CBS pays $1.4 billion for its Sunday afternoon and Thursday night games. NBC’s total is nearly $1.2 billion. The broadcast networks are demanding higher fees from pay-TV operators to carry their station signals, in part, to help cover their football costs.

The rising cost of sports is a major reason for the higher cable bills. Sports now make up about 40 percent of programming costs paid by cable and satellite TV operators. For example, ESPN costs an average $7.20 a month, per subscriber home, and a channel like SportsNet LA has been offered for about $4.50 a month, per subscriber home, according to consulting firm SNL Kagan. The NFL Network costs pay-TV companies $1.39 a month per subscriber — nearly twice the fee of such popular channels as Nickelodeon or CNN.

SNL Kagan estimates that pay-TV customers next year will chip in an average $18.37 a month for sports, up from $2.85 a month in 2001.